The Audit Plan – template user guide
Contents
1. Page 6 8 10 11 12 13 14 15 16 19 20 21 Purpose The purpose of this report is to contribute towards the effective two way communication between auditors and the Council s Audit and Accounts Committee as those charged with governance The report covers some important areas of the auditor risk assessment where we are required to make inquiries of the Audit and Accounts Committee under auditing standards Background Under International Standards on Auditing UK and Ireland TSA UK amp I auditors have specific responsibilities to communicate with the Audit Committee ISA UK amp I emphasise the importance of two way communication between the auditor and the Audit Committee and also specify matters that should be communicated This two way communication assists both the auditor and the Audit Committee in understanding matters relating to the audit and developing a constructive working relationship It also enables the auditor to obtain information relevant to the audit from the Audit Committee and supports the Audit Committee in fulfilling its responsibilities in relation to the financial reporting process Communication As part of our risk assessment procedures we are required to obtain an understanding of management processes and the Audit and Accounts Committee s oversight of the following areas fraud elaws and regulations egoing concern accounting estimates related party transactions This report includes a s2. Review and approval of policies and procedures including an Anti Fraud and Corruption Policy Regulation of Investigatory Powers Act and Whistleblowing Policy Review of risk management arrangements set out in the risk management policy strategy and process Review of Internal Audit progress reports Review of Internal Audit Annual Report which includes the opinion on the control environment Receiving periodic updates on the outcome of any fraud investigative work Receiving updates on actions taken to enhance controls and protect against the risk of fraud e g procurement arrangements and Consideration of reports from External Audit and any action plans setting out recommendations made Procedures dictate that the Chair of the Audit and Accounts Committee is informed of any matters of actual suspected or alleged fraud with notification to the Audit and Accounts Committee subject to confidentiality There are a number of policies and procedures in place which are reviewed and approved by the Standards Committee including the Ethical Framework inc Code of Corporate Governance a Staff Code of Conduct Registers for Interests and Gifts amp Hospitality Such policies and procedures are the subject of a detailed communications process which includes extensive coverage during induction and training The Council has a well publicised Whistleblowing Policy No significant issues have been reported Fraud risk assessment Que
3. Grant Thornton Informing the audit risk assessment for Staffordshire Moorlands District Council Year ended 31 March 2013 17 May 2013 Phil Jones Engagement Lead T 0121 232 5232 E _ phil w jones uk gt com Allison Rhodes Manager T 0121 232 5285 E allison rhodes uk gt com Phil Wood Executive T 0121 232 5256 E philip wood uk gt com The contents of this report relate only to the matters which have come to our attention which we believe need to be reported to you as part of our audit process It is not a comprehensive record of all the relevant matters which may be subject to change and in particular we cannot be held responsible to you for reporting all of the risks which may affect your business or any weaknesses in your internal controls This report has been prepared solely for your benefit and should not be quoted in whole or in part without our prior written consent We do not accept any responsibility for any loss occasioned to any third party acting or refraining from acting on the basis of the content of this report as this report was not prepared for nor intended for any other purpose Contents Section Purpose Fraud Fraud Risk Assessment Laws and Regulations Impact of Laws and Regulations Going Concern Going Concern Considerations Estimates Estimate considerations Related Parties Related Parties consideration 2013 Grant Thornton UK LLP Informing the risk assessment May 13
4. senior managers officers requiring confirmation that read and understood the declaration requirements and stating details of any known related party interests e Review of in year income and expenditure transactions with known identified related parties from prior year or known history e Review of related information with subsidiaries companies and joint ventures e g accounts e Review of the accounts payable and receivable systems and identification of amounts paid to from assisted or voluntary organisation e Review of year end debtor and creditor positions in relation to the related parties identified e Review of minutes of decision making meetings to identify any member declarations and therefore related parties 22 Grant Thornton 2013 Grant Thornton UK LLP All rights reserved Grant Thornton means Grant Thornton UK LLP a limited liability partnership Grant Thornton is a member firm of Grant Thornton International Ltd Grant Thornton International References to Grant Thornton are to the brand under which the Grant Thornton member firms operate and refer to one or more member firms as the context requires Grant Thornton International and the member firms are not a worldwide partnership Services are delivered independently by member firms which are not responsible for the services or activities of one another Grant Thornton International does not provide services to clients grant thornton co uk 23
5. A UK amp I 540 covers auditor responsibilities relating to estimates in an audit of financial statements Local authorities use estimates in the preparation of their financial statements We need to obtain an understanding of show management identifies the transactions events and conditions that give rise to the need for an accounting estimate how management actually make the estimates including the control procedures in place to minimise the risk of misstatement We need to be aware of all estimates that the Council use as part of their accounts preparation These are set out overleaf please also consider in the context of group accounts 2013 Grant Thornton UK LLP Informing the risk assessment May 13 15 Estimate considerations Equipment vehicles 3 to 15 years Plant 3 to 15 years Infrastructure 25 years Consistent asset lives applied to each asset category Other assets considered by Property Services Manager and capital accountant used This life would be recorded in accordance with RICS valuation Detailed information is included in the valuers report for each asset The lives used for other assets are based on operational experience of the service areas The asset live is then recorded in the asset register Property plant amp Valuations for land and buildings Capital Accountant Use external RICS Valuations are made in line with RICS No equipment are made by the external v
6. al the recoverable amount of the asset is estimated and where this is less than the carrying amount of the asset an impairment loss is recognised for the shortfall At the inception of the lease the liability is the lower of the fair value of the asset or present value of the minimum lease payments Payments are split between the finance charge and the element that reduces the liability 2013 Grant Thornton UK LLP Informing the risk assessment May 13 Controls used to identify estimates Consistent application of depreciation method across all assets Assets ate assessed at each year end as to whether there is any indication that an asset may be impaired This assessment is made by the external valuer for land and buildings and by Property Services Manager and capital accountant and other relevant officers for the asset type for other assets Finance review contracts and payments over the de minimus level to ensure the lease is categorised correctly as a finance lease or an operating lease Calculations supported by lease documents 17 Use of an expert No External RICS valuer Other assets considered by Property Services Manager and capital accountant May obtain guidance to support lease classifications Underlying assumptions Assessment of degree of uncertainty Consideration of alternative estimates The length of the life is determined at the point of acquisition or r
7. aluer in notifies the valuer of the valuer for buildings guidance reliance on expert valuations line with RICS guidance on the program of rolling valuations Assumptions ate set out in valuers report basis of 5 year valuations with valuations or of any interim reviews conditions that warrant Other assets For other assets 10 revaluation but an interim re valuation considered by asset lives reviewed based on the Other assets are valued on the basis Services Manager operational experience of the service of depreciated historic cost as and capital areas proxy for fair value as relatively accountant short asset lives before replacement Estimated The following asset categories have Specific asset lives Use external RICS The method makes some generalisations No remaining useful general asset lives applied to buildings valuer for For example building lives would vary lives of PPE Buildings range 30 to 70 years Buildings depending on the construction materials 2013 Grant Thornton UK LLP Informing the risk assessment May 13 Estimate considerations Estimate Depreciation amp Amottisation Impairments Finance lease liability Method Depreciation is provided for all fixed assets with a finite useful life on a straight line basis Assets are assessed at the year end for any indication that an asset may be impaired Where indications exist and any possible differences are estimated to be materi
8. ancial Plan specifically includes consideration of both national e g changes appropriately reflected in the Business statutory and local e g policy issues in terms of their potential financial impact Plan financial forecasts and report on going concern Have there been any significant issues raised No significant issues have been raised with the Audit and Accounts Committee during the year which could cast doubts on the assumptions made Examples include adverse comments raised by internal and external audit regarding financial performance or significant weaknesses in systems of financial control Does a review of available financial information No Financial information is closely monitored as a matter of routine through firmly established processes identify any adverse financial indicators including negative cash flow If so what action is being taken to improve financial performance Does the Council have sufficient staff in post Yes Staffing numbers are adequate If and when numbers or experience is considered lacking additional resource with the appropriate skills and experience is brought in from third parties particularly at senior manager level to ensure the delivery of the Council s objectives If not what action is being taken to obtain those skills 2013 Grant Thornton UK LLP Informing the risk assessment May 13 14 Estimates Issue Matters in relation to accounting estimates IS
9. atements relating to management s use of the going concern assumption in the financial statements The going concern assumption is a fundamental principle in the preparation of financial statements Under this assumption entities are viewed as continuing in business for the foreseeable future Assets and liabilities are recorded on the basis that the entity will be able to realise its assets and discharge its liabilities in the normal course of business The code of practice on local authority accounting requires an authority s financial statements to be prepared on a going concern basis Although the Council is not subject to the same future trading uncertainties as private sector entities consideration of the key features of the going concern provides an indication of the Council s financial resilience As auditor we are responsible for considering the appropriateness of use of the going concern assumption in preparing the financial statements and to consider whether there are material uncertainties about the Council s ability to continue as a going concern that need to be disclosed in the financial statements We discuss the going concern assumption with management and review the Council s financial and operating performance Going concern considerations have been set out below and management has provided its response 2013 Grant Thornton UK LLP Informing the risk assessment May 13 12 Going concern considerations Question Does
10. aud risks including assessment that the financial statements could be materially misstated due to fraud process for identifying and responding to risks of fraud including any identified specific risks communication with the Audit and Accounts Committee regarding its processes for identifying and responding to risks of fraud communication to employees regarding business practices and ethical behaviour We need to understand how the Audit and Accounts Committee oversees the above processes We are also required to make inquiries of both management and the Audit and Accounts Committee as to their knowledge of any actual suspected or alleged fraud These areas have been set out in the fraud risk assessment questions below together with responses from the Council s management 2013 Grant Thornton UK LLP Informing the risk assessment May 13 5 Fraud risk assessment Question Has the Council assessed the risk of material misstatement in the financial statements due to fraud What are the results of this process What processes does the Council have in place to identify and respond to risks of fraud Have any specific fraud risks or areas with a high risk of fraud been identified and what has been done to mitigate these risks Are internal controls including segregation of duties in place and operating effectively If not where are the risk areas and what mitigating actions have been taken Are there any areas wher
11. e Council The Code notes that in considering materiality regard should be had to the definition of materiality which requires materiality to be judged from the viewpoint of both the Council and the related party ISA UK amp I 550 requires us to review your procedures for identifying related party transactions and obtain an understanding of the controls that you have established to identify such transactions We will also carry out testing to ensure the related party transaction disclosures you make in the financial statements are complete and accurate 2013 Grant Thornton UK LLP Informing the risk assessment May 13 21 Related party considerations Question Who are the Council s related parties What are the controls in place to identify account for and disclose related party transactions and relationships 2013 Grant Thornton UK LLP Informing the risk assessment May 13 Management response please also consider in the context of group accounts Precepting authorities Officers and their families Members and their families Ascent Housing Joint Venture Grant recipients Grant donors etc A number of arrangements are in place for identifying the nature of a related party and reported value including e Maintenance of a Register of interests for Members a register for pecuniary interests in contracts for Officers and Senior Managers requiring disclosure of related party transactions e Annual return from
12. e there is a potential for override of controls or inappropriate influence over the financial reporting process for example because of undue pressure to achieve financial targets 2013 Grant Thornton UK LLP Informing the risk assessment May 13 Management response please also consider in the context of group accounts Yes The underlying management processes are primarily as described in the Annual Governance Statement which is published alongside the Statement of Accounts These are strengthened by additional procedures specific to the Statement of Accounts For example the Chief Finance Officer undertakes a detailed review of the draft Accounts and will not issue a certificate until satisfactory answers and assurances have been provided We conclude that there is no significant risk of material misstatement in the Statement of Accounts due to fraud There are a number of policies and procedures in place including an Anti Fraud and Corruption Policy RIPA Policy amp Procedures Whistleblowing Policy risk management arrangements set out in the risk management policy strategy and process participation in the NFI Benefit Fraud Investigation Team Internal Audit is also good practice compliant and has a proven track record in planning audit work to take account of fraud risks and responding appropriately to fraud risks in the organisation and enhancing controls to protect against the risk of fraud e g procurement arrangement
13. e with laws and regulations have been identified during 2012 13 Impact of laws and regulations Question Management response please also consider in the context of group accounts What arrangements does the Council have The Council has embedded systems and procedures in place to deal with litigation and claims as they emerge e g in place to identify evaluate and account for the Link Officer in respect of Ombudsman issues litigation or claims At year end additional procedures ensure that any such items are reflected in the financial statements if appropriate This is incorporated within closedown procedures and includes specific enquiries of all senior management with a particular emphasis on the Legal Services Manager the Insurance Officer and the Customer Services Manager responsible for the Ombudsman related issues Is there any actual or potential litigation or Areas of litigation are reported in the Statements where their impact is considered material or significant to the claims that would affect the financial readers of the statements and the outturn itself statements Have there been any reports from other No regulatory bodies such as HM Revenues and Customs which indicate non compliance 2013 Grant Thornton UK LLP Informing the risk assessment May 13 11 Going concern Issue Matters in relation to going concern ISA UK amp 1 570 covers auditor responsibilities in the audit of financial st
14. eries of questions on each of these areas and the response we have received from the Council s management The Audit and Accounts Committee should consider whether these responses are consistent with the its understanding and whether there are any further comments it wishes to make 2013 Grant Thornton UK LLP Informing the risk assessment May 13 4 Fraud Issue Matters in relation to fraud ISA UK amp 240 covers auditors responsibilities relating to fraud in an audit of financial statements The primary responsibility to prevent and detect fraud rests with both the Audit and Accounts Committee and management Management with the oversight of the Audit and Accounts Committee needs to ensure a strong emphasis on fraud prevention and deterrence and encourage a culture of honest and ethical behaviour As part of its oversight the Audit and Accounts Committee should consider the potential for override of controls and inappropriate influence over the financial reporting process As auditor we are responsible for obtaining reasonable assurance that the financial statements are free from material misstatement due to fraud or error We are required to maintain professional scepticism throughout the audit considering the potential for management override of controls As part of our audit risk assessment procedures we are required to consider risks of fraud This includes considering the arrangements management has put in place with regard to fr
15. etirement ages mortality rates and the County Council engage this estimate of expected returns on pension fund assets the Actuary who provides the contributions to the estimate of the pension liability actuals paid out in the year 2013 Grant Thornton UK LLP Informing the risk assessment May 13 20 Related parties Issue Matters in relation to related parties ISA UK amp I 550 covers auditor responsibilities relating to related party transactions Many related party transactions are in the normal course of business and may not carry a higher risk of material misstatement However in some circumstances the nature of the relationships and transaction may give rise to higher risks For local government bodies the Code of Practice on Local Authority Accounting in the United Kingdom the Code requires compliance with IAS 24 related party disclosures The Code identifies the following as related parties to local government bodies entities that directly or indirectly through one or more intermediaries control or are controlled by the Council i e subsidiaries associates joint ventures in which the Council is a venturer ean entity that has an interest in the Council that gives it significant influence over the Council key officers and close members of the family of key officers post employment benefit plan pension fund for the benefit of employees of the Council or of any entity that is a related party of th
16. evaluation Major components are depreciated separately Valuations are made in line with RICS guidance reliance on expert Assets recognised under finance leases are accounted for using the policies applied generally to such assets subject to depreciation being charged over the lease term if this is shorter than the asset s estimated useful life where ownership of the asset does not transfer to the Council at the end of the lease period Change in accounting method in year No Estimate considerations Non adjusting events events after the BS date 151 Officer makes the assessment If the event is indicative of conditions that arose after the balance sheet date then this is an unadjusting event For these events only a note to the accounts is included identifying the nature of the event and where possible estimates of the financial effect Managers notify the 151 Officer This would be considered on individual circumstances This would be considered on individual circumstances N A Allocation of overhead costs The finance team apportion central support costs to services using specified bases as detailed in supporting analysis All support service cost centres are allocated according to the agreed principles No Apportionment bases are reviewed each year to ensure that remain appropriate and equitable No Measurement of Financial Instruments Counc
17. il values financial instruments at fair value based on the advice of their internal treasury consultants and other finance professionals Take advice from finance professionals Yes Take advice from finance professionals 2013 Grant Thornton UK LLP Informing the risk assessment May 13 18 Estimate considerations Bad Debt A provision is estimated using a The finance team No Consistent proportion used across aged debt as No Provision proportion basis of an aged obtain the aged debt per the Code debt listing listing from the sales ledger and calculate the provision Provisions for Provisions are made where an Charged in the year No Estimated settlements are reviewed at the end of No liabilities event has taken place that gives the Council a legal or constructive obligation that probably requires settlement by a transfer of economic benefits or service potential and a reliable estimate can be made of the amount of the obligation Provisions are charged as an expense to the appropriate service line in the CI amp ES in the year that the Council becomes aware of the obligation and are measured at the best estimate at the balance sheet date of the expenditure required to settle the obligation taking into account relevant risks and uncertainties that the Council becomes aware of the obligation each financial year where it becomes less than probable that a
18. port to Council if he considers that any proposal decision or omission would give rise to unlawfulness or maladministration thereby stopping the proposal or decision being implemented until the report has been considered Legal implications are outlined in all committee reports The operation of the statutory officer roles Head of Paid Services Monitoring Officer and Chief Financial Officer help to provide assurance that laws and regulations are complied with The Internal Audit service operates to the standards set out in the Code of Practice for Internal Audit in local Government in the United Kingdom and the Internal Audit Plan specifically considers compliance with laws and regulations The Council has a well publicised Whistleblowing Policy The Chief Financial Officer attends Audit and Accounts committee meetings to respond to members enquiries Standard reporting formats requires that legal implications are outlined in all committee reports The Audit Manager has a number of alternative reporting lines in the event of breach of law or regulation including a right to meet privately with the Chair of the Audit and Accounts or the Committee in full should the situation determine such an approach necessary Confirmation from the Monitoring Officer Chief Financial Officer CFO Audit Manager Legal Services Manager and Finance and Procurement Manager has been obtained that no instances of non compliance or suspected non complianc
19. s No specific fraud risks or areas with a high risk of fraud have been identified However the Council is always vigilant to the threat of fraud and Internal Audit work is planned to highlight the threat of potential fraud including completion of external audit fraud checklists Overall internal controls work effectively and Internal Audit report on ineffective controls which are corrected by management Not significantly Financial and operational targets are an important part of the management process However a strong corporate commitment to appropriate ethical behaviour outweighs any pressure to meet targets Fraud risk assessment Question Are there any areas where there is a potential for misreporting override of controls or inappropriate influence over the financial reporting process How does the Audit and Accounts Committee exercise oversight over management s processes for identifying and responding to risks of fraud What arrangements are in place to report fraud issues and risks to the Audit and Accounts Committee How does the Council communicate and encourage ethical behaviour of its staff and contractors How do you encourage staff to report their concerns about fraud Have any significant issues been reported 2013 Grant Thornton UK LLP Informing the risk assessment May 13 Management response Controls are in place to minimise risk The Audit and Accounts Committee provides oversight through
20. stion Management response Are you aware of any related party Not aware of any related party relationships or transactions that could give rise to instances of fraud relationships or transactions that could give Monitoring and controls in place mitigate the risk rise to risks of fraud Are you aware of any instances of actual Confirmation from the Monitoring Officer Chief Financial Officer CFO Audit Manager Legal Services suspected or alleged fraud either within the Manager and Finance and Procurement Manager has been obtained that no significant frauds have been identified Council as a whole or within specific during 2012 13 departments since 1 April 2012 2013 Grant Thornton UK LLP Informing the risk assessment May 13 8 Laws and regulations Issue Matters in relation to laws and regulations ISA UK amp 1 250 requires us to consider the impact of laws and regulations in an audit of the financial statements Management with the oversight of the Audit and Accounts Committee is responsible for ensuring that the Council s operations are conducted in accordance with laws and regulations including those that determine amounts in the financial statements As auditor we are responsible for obtaining reasonable assurance that the financial statements are free from material misstatement due to fraud or error taking into account the appropriate legal and regulatory framework As part of our risk assessment procedures we are req
21. the Council have procedures in place to assess the Council s ability to continue as a going concern Is management aware of the existence of other events or conditions that may cast doubt on the Council s ability to continue as a going concern Are arrangements in place to report the going concern assessment to the Audit and Accounts Committee Are the financial assumptions eg future levels of income and expenditure consistent with the Council s Business Plan and the financial information provided to the Council throughout the year 2013 Grant Thornton UK LLP Informing the risk assessment May 13 Management response Yes There is a firmly embedded Financial Planning process which includes a rolling Medium Term Financial Plan that is updated three times annually Other features include CFO assessments and statements regarding budget estimates and the adequacy of reserves and balances No All such known events are systematically mitigated For example budget deficits are primarily addressed through a well developed approach towards the achievement of efficiency savings which has a proven track record of success Yes Yes Well established quarterly reporting process to councillors combined with performance reporting against the Council s corporate plans and targets 13 Going concern considerations Question Management response Are the implications of statutory or policy Yes For example the Medium Term Fin
22. transfer of economic benefits will now be required or a lower settlement than anticipated is made the provision is reversed and credited back to the relevant service Where some or all of the payment required to settle a provision is expected to be recovered from another party e g from an insurance claim this is only recognised as income for the relevant service if it is virtually certain that reimbursement will be received by the Council 2013 Grant Thornton UK LLP Informing the risk assessment May 13 19 Estimate considerations Accruals Finance team collate accruals Review financial No Accruals for income and expenditure often No of expenditure and income systems to identified based on known values Activity is accounted forin the where goods have Where accruals are estimated the latest available financial year that it takes place been received but not information is used not when money is paid or paid for received Requests of service managers to identify any other goods or services received or provided but not paid for Pension liability The Council is admitted body Payroll data is Consulting As disclosed in the actuary s report Complex No to the Staffordshire Local provided to the actuary judgements including the discount rate used rate Government Pension Scheme Actuary at which salaries are projected to increase The administering authority Management reconcile changes in r
23. uired to make inquiries of management and the Audit and Accounts Committee as to whether the entity is in compliance with laws and regulations Where we become aware of information of non compliance or suspected non compliance we need to gain an understanding of the non compliance and the possible effect on the financial statements Risk assessment questions have been set out below together with responses from management 2013 Grant Thornton UK LLP Informing the risk assessment May 13 9 Impact of laws and regulations Question What arrangements does the Council have in place to prevent and detect non compliance with laws and regulations How does management gain assurance that all relevant laws and regulations have been complied with How is the Audit and Accounts Committee provided with assurance that all relevant laws and regulations have been complied with Have there been any instances of non compliance or suspected non compliance with law and regulation since 1 April 2012 or earlier with an on going impact on the 2012 13 financial statements 2013 Grant Thornton UK LLP Informing the risk assessment May 13 _Management response please also consider in the context of group accounts The operation of the statutory officer roles Head of Paid Services Monitoring Officer and Chief Financial Officer help to ensure compliance with laws and regulations For example the Monitoring Officer has the authority to re
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